Wellness products company Nature’s Sunshine Products (NASDAQ:NATR) reported Q3 CY2024 results beating Wall Street’s revenue expectations, with sales up 3.1% year on year to $114.6 million. The company’s full-year revenue guidance of $445.5 million at the midpoint came in 1.4% above analysts’ estimates. Its non-GAAP profit of $0.23 per share was also 64.3% above analysts’ consensus estimates.
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Nature's Sunshine (NATR) Q3 CY2024 Highlights:
- Revenue: $114.6 million vs analyst estimates of $108.9 million (5.2% beat)
- Adjusted EPS: $0.23 vs analyst estimates of $0.14 ($0.09 beat)
- EBITDA: $10.73 million vs analyst estimates of $9.36 million (14.7% beat)
- The company lifted its revenue guidance for the full year to $445.5 million at the midpoint from $440.5 million, a 1.1% increase
- EBITDA guidance for the full year is $41 million at the midpoint, above analyst estimates of $39.56 million
- Gross Margin (GAAP): 71.3%, down from 73.1% in the same quarter last year
- Operating Margin: 4.6%, in line with the same quarter last year
- EBITDA Margin: 9.4%, in line with the same quarter last year
- Free Cash Flow Margin: 6.9%, down from 8.9% in the same quarter last year
- Market Capitalization: $263.2 million
“The third quarter delivered the highest sales volume this year, with $114.6 million in sales, up 4% versus prior year on a local currency basis. The strong performance was driven by robust customer growth in Japan and Taiwan, continued progress in Korea, and strong execution and customer activation in Central Europe.” said Terrence Moorehead, CEO of Nature’s Sunshine.
Company Overview
Started on a kitchen table in Utah, Nature’s Sunshine Products (NASDAQ:NATR) manufactures and sells nutritional and personal care products.
Personal Care
While personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.
Sales Growth
A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years.
Nature's Sunshine is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from economies of scale.
As you can see below, Nature's Sunshine’s sales grew at a weak 1.3% compounded annual growth rate over the last three years. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.
This quarter, Nature's Sunshine reported modest year-on-year revenue growth of 3.1% but beat Wall Street’s estimates by 5.2%.
Looking ahead, sell-side analysts expect revenue to grow 1.9% over the next 12 months, similar to its three-year rate. This projection is underwhelming and shows the market believes its newer products will not lead to better top-line performance yet.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
Nature's Sunshine has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4%, subpar for a consumer staples business.
Taking a step back, we can see that Nature's Sunshine’s margin dropped by 2.4 percentage points during that time. If this trend continues, it could signal it’s becoming a more capital-intensive business.
Nature's Sunshine’s free cash flow clocked in at $7.88 million in Q3, equivalent to a 6.9% margin. The company’s cash profitability regressed as it was 2 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends trump temporary fluctuations.
Key Takeaways from Nature's Sunshine’s Q3 Results
We were impressed by how significantly Nature's Sunshine blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates. On the other hand, its gross margin missed analysts’ expectations. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 1.9% to $14.06 immediately following the results.
Nature's Sunshine put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
